While Virgin Galactic got its logo on SpaceShipOne and tons of media attention, it doesn’t really have 7,000 customers just yet. (credit: J. Foust)

Banking on £805 million of promises

by Sam DinkinMonday, March 7, 2005

Virgin Galactic posted a signup last year for its mailing list. They include one question about your interest: “Would you consider putting down a deposit for a ride when we are ready for you to do so?” From this has been extrapolated over a billion dollars of promises. At the projected ticket price of £115,000 ($220,000 at Friday’s exchange rate, $190,000 at the time of the announcement), there were 7,000 people who were willing to say “Yes! Where do I sign?” Richard Branson announced this number as if he had £805 million in the bank and went unchallenged. As far as I know, no one has been asked to put down any money to reserve a seat on Virgin Galactic. Have the press corps turned into mindless robots?

I knew that fact checking was on the wane, but this seems a pretty extreme example. There does not appear to be very much fact checking going on about this number. What was the methodology used to collect it? (Web form.) How realistic is it? (Not very.) In experimental economics, survey data about future purchases is proven to be not nearly as valuable as when people put their money where their mouth is.

As far as I know, no one has been asked to put down any money to reserve a seat on Virgin Galactic. Have the press corps turned into mindless robots?

Branson appears to be guilty of worse exaggeration than NASA Watch says the Mars Society is doing when it counts its 7,000 members. It’s one thing to say that someone who put down $50 last year, but not this year is still on the rolls. It’s another to say that someone who put down $0.00 can be counted on to pay $220,000. NASA Watch does call Sir Richard on the claim that passengers will see stars. Hopefully, Branson will not be seeing stars by the time his board gets through with him if demand turns out to be less than anticipated.

But Branson’s methodology was in plain sight. He cannot really be chastised for exaggerating when he does not hide his method of coming up with the number from the prying eyes of the press. Or perhaps we do need to chastise him for not prying the eyes of the press open.

I am next most displeased with the December 16, 2004 issue of The Economist:

All the studies so far suggest there is indeed enough interest. About 13,000 people from around the world have already registered to pay a deposit with Virgin. Some want to pay the entire amount up-front, in order to guarantee one of the first flights. And if Virgin has got its sums right, it need fill only 5,000 seats over the first five years to turn a profit.

Studies? The only study released to the public, the Futron-Zogby study, shows only $400 million in 2007–2011 demand, which is about 60% short. And that’s for the entire market. If all the other suborbital aspirants fly, how many passengers will that leave Sir Richard? The good news is that if Virgin Galactic goes broke, they can write off the capital cost of their spaceships and offer prices based on fuel and labor costs, not R&D and production costs. However, will the rubber and laughing gas still cost too much to compete with a technology that just needs to be topped off with liquid fuel?

Branson wants a fleet of spaceships, capable of carrying at least five people each, to fly jet-setters into the edge of space. More than 70,000 people have signed up to reserve a seat, which initially will cost about $200,000.

At this price they estimate a market of 7,000 potential passengers, to fly over a five-year period starting 2007-2008.

Branson is hedging his bets about his numbers which I pointed out last October (see “Ka-CHING!”, The Space Review, October 7, 2004) are quite a bit more than Futron-Zogby’s. Business Week also picked up on this analysis and deserves subtle criticism that would be what I would hope to do in an in-depth publication like The Space Review:

According to a Virgin official, a joint feasibility study by Virgin and Mojave Aerospace Ventures estimates at least 15,000 people in the U.S. would pay more $100,000 to take a two-hour suborbital ride. But Futron, a space research organization that commissioned a suborbital tourism market study by Zogby in 2002, found about 500 to 800 people would be able and willing to pay if the ticket price were set at $100,000 -- about half of what Virgin says it will charge. (No surprise here: The majority of the participants are expected to be married men in their 50s.)

Still, even if the lower number is accurate, that would be enough to sell out Virgin Galactic, which plans to make a maximum of 104 flights (a total of 520 passengers) in its first year.

Branson may be smarter than he is projecting. The way Branson is hedging is by offering some flights to winners of prizes from 7up and Volvo.

Well first, it was 500–1,300 growing by year. Second, the lower number is for a $100,000 ticket price. For a $200,000 ticket price, demand could be 250–400, or even less, depending on the price elasticity. Third, they are mistaking total market demand for individual firm demand. Fourth, if others are selling tickets for $100,000 at Space Adventures, what does that do to market demand at $200,000? Basically what I am saying is that this was the only piece good enough to rate a D– as an answer to a test question from an introductory economics student.

Branson may be smarter than he is projecting. The way Branson is hedging is by offering some flights to winners of prizes from 7up and Volvo. If half his flights are prizes for promotions or lotteries, that may add another $400 million in revenue to the industry in 2007–2011 from non-rich people not counted by Futron-Zogby and really democratize who gets shot into space.

Email me what you think are the following:

The date Virgin will start flying paying passengers.

The number of flights provided by Virgin 2007–2011.

The average price of Virgin flights (2007–2011) in pounds per paying passenger.

The average price of Virgin flights (2007–2011) in dollars per paying passenger.

The average number of passengers per flight that will be carried by Virgin.

The total number of paying passengers to 100 km or higher in 2007–2011 by all carriers (including multiple paid trips by the same person).

The person(s) with the closest answer(s) to each question will enter a drawing for six SpaceShot mugs, one per question (Please remind me in 2012 that I made this offer, by which time I will have 2012 hindsight). You will have to prove that you are not a robot by responding to a visual challenge. Unfortunately, most of the press corps has not been able to do that when it comes to Branson’s claims about suborbital demand.

Sam Dinkin of Austin, Texas is a regular columnist at The Space Review. He can be reached at (888) 434-6546 and thespacereview@dinkin.com.